China is ramping domestic Deep UV (DUV) lithography chip production, reducing dependence on ASML and positioning Chinese chipmakers for self-sufficient advanced node manufacturing.
ASML shares, the global leader in lithography equipment, tumbled after reports that Chinese corporations had begun mass production of deep ultraviolet (DUV) lithography tools for semiconductor manufacturing.
On July 1, a semiconductor-focused outlet on China's social media platform Weixin reported that Shanghai Micro Electronics Equipment (SMEE) was developing a twenty-eight-nanometer-class DUV lithography machine. This was followed on July 27 by Bloomberg, citing IT outlet The Information, which disclosed that a state-backed semiconductor equipment corporation based in Shanghai had begun mass production of immersion DUV lithography tools. While the company's identity was not officially disclosed, reports indicated plans to produce approximately five systems this year and around twenty next year.
The equipment is slated to be supplied to major Chinese chipmakers including Semiconductor Manufacturing International Corp. (SMIC), ChangXin Memory Technologies (CXMT), and Hua Hong Semiconductor. Unable to access EUV tools due to U.S. export controls, Chinese chipmakers aim to sustain smartphone and artificial intelligence chip production by applying multi-patterning processes to immersion DUV equipment.
The initiative appears to be less a single company effort than a localization consortium. According to The Information, development was carried out by integrating the DUV research and development operations of several Chinese corporations around Weiliangxing. Industry sources indicate that participants included Xinkailai, SMEE, Huawei, and a Tsinghua University research team. Xinkailai, a semiconductor equipment maker founded by former Huawei staff, is considered a key corporation in the Chinese government's semiconductor self-reliance strategy.
Lithography tools are essential semiconductor equipment that project light onto wafers to form circuits. They are categorized into extreme ultraviolet (EUV) and DUV systems based on process miniaturization capability, with DUV primarily used for processes at ten nanometers and above. While EUV dominates cutting-edge nodes, DUV continues to see steady demand in mature nodes and some advanced processes.
ASML shares fell 8.4% on the day the news broke. Despite U.S. semiconductor export controls on China, investor sentiment appears to have been affected by expectations that China is making progress in developing indigenous lithography tools.
Since 2019, the United States has pressured the Dutch government to restrict ASML's exports of EUV lithography tools to China, with cutting-edge immersion DUV tools added to the controls in 2023. The U.S. has more recently been promoting the "MATCH Act," which would restrict even parts supply and maintenance services for DUV tools already delivered to China.
However, industry analysis still identifies a significant technology gap between Chinese-made equipment and ASML's offerings. While ASML produces more than 130 immersion DUV systems annually, the Chinese equipment's production target remains around five units this year. The technology level is comparable to ASML's early-generation immersion DUV systems, with analyses indicating that years of development remain to close gaps in precision, production yield, and equipment reliability.
Meanwhile, the industry expects the initial public offering of CXMT, China's leading DRAM maker, to positively impact the growth of China's semiconductor equipment ecosystem.
According to Choi Seol-hwa, an analyst at Meritz Securities, "The listing of CXMT carries meaning beyond capital raising. As CXMT applies Chinese-made equipment to mass-production lines and improves production yield and reduces errors, Chinese equipment makers can accumulate large-scale mass-production experience and learning effects, narrowing the technology gap with global companies."